Saving can be a tough topic, especially in January, when households in Kenya are struggling with a myriad of financial obligations after a spending-free December. However, this topic is a necessary challenge as people plan for the year ahead.

Saving money is one of the essential aspects of building wealth and having a secure financial future. Saving money gives you a way out of the uncertainties of life and provides you with an opportunity to enjoy a quality life. 

Putting aside a sum of money systematically can help you navigate through many hurdles in life. It can support you in your hour of need and ensure that your family has something to fall back on in case of an unfortunate event. 

Although the saving culture in Kenya has grown mildly since 2009, it took a hit with the advent of Covid-19, which squeezed earnings.. This worsened last year as the globe navigated what economic experts describe as a near financial depression.

The cost of living rose sharply, the shilling dropped to an all-time low against the dollar, and borrowing costs skyrocketed. These issues were exacerbated by global supply chain disruptions and increased geopolitical tensions.Most of these effects have been attributed to Russia-Ukraine attacks and perennial conflict between Israel and Palestine. 

The '2024 FinAccess Household Survey' by the Central Bank of Kenya (CBK), the Kenya National Bureau of Statistics (KNBS), and the Financial Sector Deepening Trust Kenya highlights a significant decline in savings habits..

According to the report, out of the total households surveyed, the trend shows a 7.9 per cent dip in the savings culture of Kenyans from 2021, the previous survey period, to date.

In real-figure terms, 68.1 per cent of the respondents noted having savings either in banks or in mobile money and other informal savings. This is low compared to 74 per cent in 2021 and 69.9 per cent in 2019. 

It is therefore no wonder that Kenya trails its regional peers in saving, with the average saving rate standing at 12 per cent, far below the continent's average of 17 per cent and the global rate of 23 per cent. 

While any form of saving is encouraged, structural saving with defined goals and value is important. In this passage, I will look at the pro and cons of Fixed Deposits savings. This is when you put a lump sum in your bank for a fixed tenure at an agreed rate of interest. At the end of the tenure, you receive the amount you have invested plus compound interest. Fixed Deposits are also called term deposits.

They are considered the most preferred investment choice since they are secured and guaranteed returns. Additionally, Fixed Deposits are not market-linked products, meaning the applicable interest rate is unaffected by market downturn. 

Here are some of the benefits of Fixed Deposits which are offered by various financial institutions in the country. 

Higher Interest Rates

Fixed Deposits offer higher interest rates compared to Savings Accounts. This helps investors maximise their savings at low risk. Fixed Deposits interest rates are calculated via the compound interest method, allowing depositors to earn higher returns upon Fixed Deposits maturity. 

Rates of Fixed Deposits in Kenya reached a 24-year high last year, with cash-0rich firms and high net worthy depositors earning an average of 10.1 per cent according to data by the Central Bank of Kenya (CBK). This was a first double figure since 2000s.

Flexible Deposit Tenure 

Fixed Deposits offer a wide range of investment periods, from as short as 7 days to as long as 10 years. You can opt for short-term Fixed Deposits if you have short-term goals like buying a car or vacationing. However, staying invested for the long-term can help you fetch higher returns at the time of Fixed Deposits maturity - again, thanks to the power of compounding.

People have diverse income streams. Recognizing this, Credit Bank in Kenya is one of the few institutions offering tailored products, such as a Call Deposits placed for a minimum of a week at higher interest than current accounts. 

The rate of interest is pegged to either the prevailing overnight (inter-bank) or the average REPO rate.

The rates applicable are market driven and communicated before placements are made. The rate of interest is pegged to treasury bills rates plus premium.

Minimal-Risk Investments 

Fixed Deposits carry minimum risk. They are not market-linked products like mutual funds. The interest remains fixed throughout the deposit tenure completely unaffected by market volatility. Additionally, Fixed Deposits investments are secured under Deposit Insurance Act. 

Convenient access to funds 

Fixed Deposits offer better liquidity options compared to Equity-Linked Saving Schemes, Money Market Funds, Saccos and a few other small saving schemes. You can withdraw your deposit amount from Fixed Deposits in case of any emergency. However, premature withdrawal of Fixed Deposits may incur penalty charges. 

For non-callable Fixed Deposits, you cannot withdraw the amount before the maturity period. That said, there could be certain specific situations where the bank may allow you to withdraw funds. For instance Fixed Deposits investors at Credit Bank can access overdraft facilities to meet immediate financial needs, secured against their fixed deposit savings.

The sooner you start saving for your goals, the more likely you are to achieve them. It's important to list your various goals and develop savings strategies for both short-term goals and long-term goals such as building a retirement home, starting a business, wedding, school fees.  

The Writer, Edward Osoro, is the Head of Business, Credit Bank PLC. [email protected]